November 02, 2010

Need a Little Inspiration?

I'm usually not much for motivational pieces. I generally prefer nuts and bolts "how to" articles or more philosophical discussions about entrepreneurship. However, this video is really well done and may inspire a few people who were contemplating a startup to get off the fence:

October 29, 2010

You Only Get Five Tickets

Warren Buffett is renowned for his ability to wait patiently for the right investment opportunity to come along. Instead of spreading his capital across a wide range of investments, he loads up on the very few that demonstrate tremendous upside potential. That's one of the primary reasons he's been so much more successful than most professional money managers. To cultivate that mindset, he once proposed that investors imagine they only had five tickets for their entire lifetimes, and making an investment required the use of one of those tickets. Just think how much more selective you would be if your portfolio operated under those limitations!

October 26, 2010

It's Not Just About Eyeballs

Daniel Lyons reports on financial problems at Digg and offers a warning for Web 2.0 outfits:

Digg’s collapse has become a cautionary tale for so-called Web 2.0 companies in Silicon Valley, even the current crop of superstars, like Facebook and Twitter. The basic problem is that these new-media companies don’t really have customers; they have audiences. Starting a company like Digg is less like building a traditional tech company (think Apple or HP) and more like launching a TV show.

October 22, 2010

Wesabe vs. Mint: Lessons Learned

Marc Hedlund recently posted a great piece on why Wesabe lost to Mint in the battle of online personal finance apps. As many of you know, Mint was acquired by Intuit in 2009 for $170 million. Wesabe, on the other hand, closed its doors several months ago. Hedlund was the product designer (and later CEO) at Wasabe, so his point of view is especially relevant. He points out, for example, that Wesabe launched almost a year before Mint, contrary to what a lot of people assume. He also makes it clear that Wesabe's failure had nothing to do with design or brand identity.

Second, Mint focused on making the user do almost no work at all, by automatically editing and categorizing their data, reducing the number of fields in their signup form, and giving them immediate gratification as soon as they possibly could; we completely sucked at all of that. Instead, I prioritized trying to build tools that would eventually help people change their financial behavior for the better, which I believed required people to more closely work with and understand their data. My goals may have been (okay, were) noble, but in the end we didn't help the people I wanted to since the product failed. I was focused on trying to make the usability of editing data as easy and functional as it could be; Mint was focused on making it so you never had to do that at all.

September 23, 2010

Fail Fast, Fail Cheap

We all hate failure. As a nation, we loathe and fear it. General Patton famously quipped, "America loves a winner, and will not tolerate a loser." And yet, failure remains as much a part of entrepreneurship as success. If you look at the careers of serial entrepreneurs, you will usually run across one or more flameouts before they hit it big. Henry Ford, Walt Disney, and Thomas Watson (the founder of IBM) all struggled early on. Watson famously had the following to say about the relationship of failure to success:

It's quite simple, really. Double your rate of failure. You’re thinking of failure as the enemy of success. But it isn’t at all. It is better to aim at perfection and miss it than to aim at imperfection and hit it. You can be discouraged by failure or you can learn from it. So go ahead and make mistakes. Make all you can. Because, remember that's where you’ll find success. On the far side.

For entrepreneurs, the important lesson is to learn how to manage failure. If you do it well, it will get you that much closer to your objective. Here's how:

  1. Don't get discouraged by the inevitable setbacks and dead ends. It's part of the game. Get used to it.
  2. Treat failures as teachable moments for you and your team. Don't repeat the same mistakes twice.
  3. Fail quickly and cheaply to preserve the option to try again. (Know when to hold 'em and when to fold 'em.)
  4. Keep your reputation intact at all times. Always play it straight with employees, partners, and investors.

If you follow these four pieces of advice, you'll get plenty of bites at the apple. Remember, it's not how many times you get knocked down. It's how many times you get back up that counts.

September 21, 2010

Design Patterns for Online Businesses

There's really nothing new under the sun. Most ways of making money, including sophisticated financial products, frequently have analogs from other industries and historical periods. Michael Rappa summarizes the most common business models found online, categorized into nine archetypal design patterns:

  • Brokerage Model—bringing buyers/sellers together
  • Advertising Model—promoting products/services to an audience
  • Infomediary Model—gathering information about an audience and monetizing it
  • Merchant Model—selling goods/service either wholesale or retail
  • Manufacturer (Direct) Model—selling goods/services directly to the user without an intermediary
  • Affiliate Model—providing purchase opportunities wherever people may be
  • Community Model—selling ancillary products/services in a community
  • Subscription Model—charging for ongoing usage of a product/service
  • Utility Model—charging based on how much of a product/service is used

September 19, 2010

Reboot: Guy Kawasaki on Bootstrapping

Guy Kawasaki's Bootstrapping EssayGuy Kawasaki has done it all in his career. He's been a Mac evangelist (and later an Apple Fellow), founded or co-founded three startups (ACIUS, Fog City Software, and Alltop), and manages his own early-stage VC fund. If that weren't enough to hang his hat on, he's also a celebrated speaker and author with nine titles to his credit, including the best-selling The Art of the Start. In 2006, he posted this essay on bootstrapping on his blog, which contains some wonderful advice for anyone involved in a startup, including some interesting contrarian ideas on what it takes to be successful.

September 17, 2010

How to Validate an Opportunity for Under $2,000

One of the biggest problems entrepreneurs face is figuring out whether their idea has legs before sinking a lot of time and capital into it. Nobody wants to have their name attached to a giant smoldering hole in the ground. Traditional forms of opportunity analysis are helpful (understanding the economics of the business model, researching the market size, growth rate, competition, etc.), but sometimes you need to actually build something you can demo or, even better, test on prospective customers.

Adeo Ressi at the Founder Institute has a great video describing a quick, ten-step process you can follow to cheaply triage whether your business model is a winner.

Adeo Ressi on Product Development 08/19/2010 from Adeo Ressi on Vimeo.

Ressi's very first suggestion is to secure your company's domain name(s) (including common misspellings and TLD variations) and e-mail. Be sure to check out my earlier post on how you can quickly set these up for your business using Google Apps and Sites for only $10!

Some of Ressi's advice is less relevant to brick and mortar businesses, and it is no substitute for an in-depth market validation effort. However, following his steps can help you weed out inferior ideas before committing your team to a more intensive validation process (as described, for example, by Rob Adams or Steve Blank).

September 16, 2010

Success Cannot Be Pursued, It Must Ensue

The title of this post is inspired by a quote from one of my favorite books: Viktor Frankl's Man's Search for Meaning. Frankl, a Viennese psychiatrist, tells us his remarkable story of survival from the death camps of Nazi Germany. The book also lays out his personal approach to psychotherapy, which he developed as a direct result of his experiences during the Holocaust. Reflecting on his time in the camps, Frankl wondered why so many of his fellow prisoners simply gave up and succumbed to despair, while the few who remained were able to overcome disease, starvation and horrors beyond description. He realized, in nearly all cases, that the survivors were animated by a deep sense of purpose. In his case, it was a steely resolve to make it out alive and be reunited with his family.

So what does Man's Search for Meaning have to do with starting a business? You might think the lesson is about persistence or the need to have a mission statement for your company. While these may be important, but that's not why I'm writing this. Instead, I'm speaking to you, because I firmly believe that the very first step to launch a successful new venture is not knowing your customer (although that is indeed critical), but knowing yourself.

September 15, 2010

What's a "Reboot," Anyway?

Whenever I come across a new article or blog post that I find noteworthy, I'll link to it of course. However, there are important resources on entrepreneurship that have been online for several years that many readers may be unfamiliar with. I occasionally resurface these classics in a series of posts I call "reboots."

You should consider a "reboot" to be a major thumbs up from me and essential reading for anyone serious about entrepreneurship. For your convenience, I've tagged all of these posts so that you can quickly find an index of them. You may want to bookmark the reboot page as a handy reference.

September 14, 2010

Reboot: Greg Gianforte on Bootstrapping

Greg Gianforte's Bootstrapping EssayGreg Gianforte is a bootstrapper par excellence. He founded and successfully bootstrapped two companies. The first, Brightwork, was eventually sold to McAfee for $10 million. He later bootstrapped his second startup, RightNow, and took it public in 2004. RightNow has become a leading CRM vendor with annual sales of over $50 million. Gianforte's 2005 essay on bootstrapping is an enduring classic and a must read for entrepreneurs.

September 13, 2010

We've Got Them on the Run!

TechChrunch recently posted this terrific article by Michael Arrington about the way plunging costs for Web startups are putting the squeeze on some of the white shoe VC funds. This allows entrepreneurs to get by with smaller seed rounds from angels and startup incubators (or just forgo funding altogether, thank you very much). The VCs aren't invited to the party until the valuations are much higher, which is starting to hurt their returns.

To the VCs, the lean startup movement has become synonymous with entrepreneurs who lower their sights and settle for mediocrity instead of building the next Apple or Google. One of them even referred to bootstrapped or lean startups as "dipshit companies." Jason Cohen at A Smart Bear is having none of it:

Rather than provide a cogent argument for why founders ought to take VC money anyway, the response is to call the company a "dipshit" and reveal the astounding arrogance that a few founders selling their company for $25m is somehow a failure.

What's going on here? I think Jason's right that this gnashing of teeth reflects the VCs' mounting frustration about being squeezed out of the startup ecosystem and attracting fewer deals on their preferred terms. It also exposes a widely-held belief that the size of the initial investment somehow determines a company's growth potential, but I don't see the correlation. As I've pointed out before, Apple, Microsoft, and Dell all managed to become tech heavyweights without significant early funding. The lesson here is that the best opportunities don't always need a lot of capital.

September 12, 2010

What's in a Name?

Since launching this blog, I've had friends and acquaintances ask me how I selected the name and what "plan on fire" means, so I'm writing this post to clarify that for anyone who might be curious.

First of all, "plan on fire" is obviously a play on the expression "man on fire," which happens to be the title of a 1981 novel by A.J. Quinnell, although I suspect the phrase may predate his book. Readers may be more familiar with the films based on the novel, one in 1987 and the other in 2004 (with Denzel Washington).

More importantly, "plan on fire" reflects my critical stance towards a myopic view of entrepreneurship often peddled to aspiring business owners. Many academic courses and books on the subject of new venture creation emphasize little beyond writing business plans and raising money, as if these were the skills that will make you into a successful entrepreneur. They won't. They are merely prerequisites necessary to exploit a limited range of opportunities.

September 10, 2010

Top 9 Reasons Bootstrapping Beats Raising Capital

  1. You get to keep all or most of the equity!
  2. Spending all your time in pitch mode draws attention away from overseeing the health of your business.
  3. Being capital constrained forces you to be more creative, focused, and disciplined. Bootstrappers get more mileage out of every dollar they spend.
  4. You'll never be forced out simply because the investors decided one day they needed to bring in a CEO with more "credibility" (read fancier résumé).
  5. You don't have to worry about getting diluted or "crammed down" in a future investment round.
  6. Bootstrapping forces you to develop a compelling value proposition and a forgiving business model right out of the chute, instead of "Our plan is to spend a lot of money today to attract eyeballs, then figure out how to monetize or sell it down the road."
  7. The care and feeding of investors is an ongoing distraction for you and your team.
  8. By necessity, bootstrapping puts you out in front of customers almost immediately. The faster your offering is in the hands of customers, the faster you generate revenue and the faster you refine the product specs to really nail the market. This may put you several iterations ahead of the competition that's developing version 1.0 internally using seed capital.
  9. Anyone can bootstrap. Your ability to launch is not contingent upon getting approval from someone else.

Here's the bonus: Bootstrapping a startup in no way prevents you from having investors later on, preferably once your business is profitable and growing. If you can eliminate the biggest risks before seeking funding, you'll raise money with less hassle and on better terms.

September 09, 2010

Case Study: A Recession-Proof Business

In case you didn't know, my family currently resides in Bulgaria. My wife is originally from here and has been doing some teaching. That's given me a unique opportunity to see how business is conducted in this part of the world. I've talked to a number of entrepreneurs to get their take on the situation in the EU's newest member state.

One of them, Vlado, is a former classmate of my wife who owns a convenience store business. He started from scratch and now has six different locations around town. I asked him how his business is holding up during the current downturn and was surprised at how upbeat his response was. Vlado's secret: The vast majority of his sales come from high-margin, recession-proof items like coffee, cigarettes, and alcohol. For most Bulgarians, these are not discretionary purchases. He's noticed customers trading down to cheaper brands during the crisis, but they still buy with the same frequency.

Of course, his success hasn't gone unnoticed. In a town of 75,000, he's seen about thirty new stores pop up in the last year alone. Several are owned by people that he once trained, but many of them are struggling and probably won't make it in the long run.

September 08, 2010

Get a Web Site and Cloud Computing for $10!

As a bootstrapper, I'm always on the hunt for ways to do more with less. Mashable has a great tutorial showing how any business can create a professional looking online presence with their own domain name for a mere $10 per year using free tools from Google. All you pay is the annual fee for a custom domain name, and you don't need to be an HTML guru to set it up.

September 07, 2010

Reboot: Seth Godin's Bootstrapper's Bible

Seth Godin's Bootstrapper's BibleSeth Godin's bootstrapping manifesto is once again available for download (and it's free). It's been around awhile, but The Bootstrapper's Bible is such a great introduction to the subject, I wanted to make sure everyone who reads this blog knows about it. I'll post a more thorough review and summary later. In the meantime, go get it. Enjoy!

September 06, 2010

Why Write About Bootstrapping?

So, I've decided to add my voice to the chorus of online resources on entrepreneurship. Why does the world need one more blog on early-stage companies, and why do I promote bootstrapping over venture-backed startups? I've elected to focus on bootstrapping, because (a) it's the best approach to entrepreneurship I've found, (b) it seldom receives the attention it deserves in the business press and academic literature, and (c) many resources on bootstrapping do not venture much beyond discussions of sole proprietorships.